By Amy Or
NEW YORK--JANA Partners LLC's flagship event-driven fund rose
0.4% in the second quarter, though gains were restrained by a pair
of underperforming stocks Visteon Corp. (VC) and Hess Corp. (HES),
according an investor letter detailing first-half performance.
JANA Master Fund's performance beat the 2.8% decline in the
Standard & Poor's 500 index, including dividends. For the first
half, the fund rose 11.2%, outperforming the benchmark index's 9.5%
gain.
The activist hedge fund managing $3.2 billion in assets also
disclosed investments in Coca-Cola Enterprises Inc.(CCE) and recent
short strategies.
"Now, European macro fears have given us the opportunity to
return CCE to JANA's top 5 positions," according to the
correspondence.
JANA owned 0.9% of Coca-Cola Enterprises at the end of March,
according to a regulatory filing. The company is the "monopoly
distributor" for all Coca-Cola beverages in the U.K., France,
Belgium, the Netherlands and Luxembourg, according to the JANA
letter.
"In spite of the Eurozone recession, bottled beverage
consumption has healthy secular growth across the continent and
Coke benefits from dominant share in all its markets. Furthermore,
CCE is currently evaluating an option to acquire the German
bottling operations from Coke," the letter said.
Describing executives at Coca-Cola Enterprises as "smart capital
allocators," JANA said they will only buy a highly
earnings-accretive business, than spend the firm's cash flow to
buying back shares.
"Either way, we expect earnings growth will lead to expansion of
the multiple currently at 11 times forward earnings," it said.
During the second quarter, JANA scored windfalls, as shares of
Inergy LP (NRGY), Expedia.com (EXPE), Barnes & Noble Inc. (BKS)
and Energizer Holdings Inc. (ENR) rose on corporate actions, like
asset disposals and formation of strategic partnerships.
Visteon and Hess, however, were the "detractors," the hedge fund
manager said. Visteon, which emerged from bankruptcy in October
2010, posted a 29% decline in share price in the three months ended
June 30 after missing first-quarter earnings estimates, while Hess
shed 26% during the period as analysts cut ratings on the company,
believing its share price will continue to struggle amid production
disruptions and losses from its refineries.
JANA, which has successfully pushed for changes at
companies--including TNT Express's (TNTEY) sale to United Parcel
Services Inc. (UPS) in March and McGraw-Hill Cos.'s split into two
companies last summer--wrote that it intends to begin a campaign
against an unidentified "major integrated global supply company" to
split up its "unrelated, non-synergistic business."
Code-named "Position A," JANA said the unidentified
global-supply company "trades at the multiple of its more-volatile
commodity-based business, failing to realize the value of its more
stable business."
"The Company's integrated structure fails to create value and
has resulted in suboptimal shareholder returns, poor capital
allocation and weak operating performance," the letter said. "We
have discussed strategic direction with management and we look
forward to telling you more about Position A in the near
future."
The hedge fund manager also detailed in the letter some of its
"favorite" short positions and themes. Without giving names, JANA
said it is betting against "certain tobacco companies that have
relied for too long on the stickiness of price increases against
falling volumes;" "a big box retailer whose category is being
entered by Amazon;" and, "a hyped-up software company with very
opaque accounting."
It is also going short on "companies in the natural gas liquids
distribution chain suffering from supply-glut pricing pressures,"
and "a social networking company with decelerating growth and
difficulties monetizing traffic."
The Boston-based firm also said in the letter that it has hired
Brandon Levin as its head of trading and syndicate to start in the
fall. Mr. Levin was most recently chief trading officer and a
member of the management committee of New York-based investment
manager Plural Investments LLC.
JANA declined to comment.
Write to Amy Or at amy.or@dowjones.com
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